COVER STORY, FEBRUARY 2005

SMALL LOANS, LARGE GAINS
LaSalle Bank has grown two small loan products into big business.
Chris Thorn

The group heads of LaSalle Bank's Real Estate Capital Markets group, from left to right: Tim Ervin and Charles Krawitz (front row); Don Spalding and Randy Martin (back row).

As the largest capital markets operation headquartered in the central time zone, LaSalle Bank has succeeded by thinking big. Last year, the Chicago-based bank’s capital markets division did $4 billion in lending. The company expects to reach $6 billion in lending in the real estate capital markets division this year.

“LaSalle has been growing in leaps and bounds during the last several years,” says Charles Krawitz, national director of small balance lending with LaSalle. “Our approach to lending is to befriend our clients. There is reciprocity and a willingness to understand the dynamics behind the transaction.”

Listening to mortgage brokers has enabled LaSalle to develop niche products in response to overlooked market needs. LaSalle Bank’s Multifamily Finance Group was designed to capture the small multifamily loans that escape the headlines. The individual loans range from $500,000 to $3 million, which places them on the smaller side of the lending spectrum. But the combined total of these smaller loans was close to $2 billion for LaSalle last year.

“With multifamily, 80 percent of the construction is for 20 percent of the market,” says Dale Grossman, managing director and chief credit officer of real estate capital markets for LaSalle. “We lend for where the other 80 percent of the people live. This isn’t the kind of trophy property you tend to read about.”

Charles Krawitz

But $2 billion is a trophy kind of number. And to reach that total, LaSalle had to create a product with lots of time and money saving attributes. For example, the Multifamily Finance Group has a $3,500 fixed cost arrangement, which is very low in the lending community. The product also offers stepped down repayment penalties in comparison to defeasance and yield maintenance. And the company does not require single asset entities to hold ownership of those assets.

“Our exit strategies have enabled us to structure more flexibility in the product than in an average capital markets execution,” says Greg Spevok, managing director of real estate capital markets with LaSalle. “This is a recourse or partial recourse product squarely aimed at the owner of small multifamily products who are looking for longer term loans.” The loans typically have a 25-year to 30-year maturity date with a fixed interest rate period from anywhere between 6 months to 10 years, depending on the borrower’s preference. The rate will float at spread over LIBOR for the remaining period of time. Because the loan does not balloon at the end of the fixed rate period, borrowers have significant breathing room in securing a new fixed rate permanent loan or disposing of the asset.

While Krawitz spearheads the Multifamily Finance Group’s origination efforts, Julie Goodman heads the production or processing side of the equation. Both Krawitz and Goodman are veterans of LaSalle, having played integral roles in launching the bank’s real estate capital markets activities in 1998. “By responding to our clients’ critiques, we have reshaped and revamped the way we conduct business,” Krawitz says. “We are determined to garner the same acclaim that we receive in our small balance conduit program with our Multifamily Finance Group”.

And LaSalle has not just modified the product to fit its clients; the company has made the application process more client-friendly. The paperwork has been simplified and the client works with the same production team throughout the entire process.

Dale Grossman

“Our production team is structured uniquely,” Grossman says. “The analysts, underwriters and closers all work within the origination team. The people who perform those functions are client-oriented because the client of the originator is also their client. There is no handoff because one team takes the transaction from start to finish.”

LaSalle believes that as more brokers use this product, word-of-mouth advertising will increase production. “We think we will do $3 billion in total production this year in the Multifamily Finance Group as more mortgage brokers become interested and add it to their arsenal,” Krawitz says.

LaSalle Select is another product designed with the “simple is better” approach. The product streamlines the processing and underwriting of securitizable transactions between $1 million and $5 million. A fixed fee between $10,500 and $13,500, depending on property type, covers environmental, appraisal and engineering reports as well as legal fees and background searches. And the product’s timeline is also a major plus by closing deals in 45 days from application. “That makes it a very appealing product,” Krawitz says. “Select has an outstanding reputation with our clients and we intend to bring more mortgage bankers into the fold this year.”

Greg Spevok

LaSalle’s efforts to uncomplicate the loan process for its clients are a natural extension of its own internal philosophies, which is evidenced by its management structure. The capital markets group reports to the senior executive vice president of specialty finance of the bank who then reports to the bank’s CEO. “We are one report removed from the top,” Spevok says.

This short chain-of-command enhances LaSalle’s flexibility when working with its clients and products. “If a mortgage broker has criticism of our process, senior management reviews the process and makes the necessary changes,” Krawitz says.

And that client-oriented approach may be the key to LaSalle’s success with these lucrative but under-the-lending-radar products. “We have really stepped up and listened to our clients,” Krawitz says. “We have deepened our relationships.”

LaSalle’s capital markets group has opened several offices around the country in order to be readily accessible to their mortgage banking clients. LaSalle’s largest field office is in Newport Beach, CA and is headed by Paul Angle. Mr. Angle has successfully parlayed his extensive industry experience, along with LaSalle’s focus on providing first rate service, to become the preferred lender to a growing list of mortgage brokers throughout the Western United States.

In addition to CMBS financings, LaSalle Bank offers construction and mini-perm loans, short-term bridge financings, mezzanine options and floating-rate bridge loans to season properties for long-term debt execution.

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